SATS Ltd. (S58.SI) Earnings Call Transcript & Summary

Hi, everyone. I'm Carolyn from Communications. Welcome to another section of SATS webcast. It has been an exciting year as we have posted our 4Q and full year results on SGX and SATS website. With me here are Kerry Mok, CEO; Manfred Seah, CFO; and Timothy Tang, CFO designate; to take you through the results. Before I start, I would like to bring your attention to the forward-looking statement currently on the screen. I'll now hand over the floor to Kerry to get the ball rolling. Kerry, over to you.

Thank you, everybody, and I appreciate you guys all taking time for this results announcement. But before I start, I thought I'll just take some time to say something. As you all know, Manfred -- this will be Manfred's last call as CFO. And all you know that since I became CEO, Manfred and I has been partners in crime. He has done a lot for SATS, and it's through his leadership that we've gone through this significant transformation and frankly, played a very pivotal role in the acquisition and integration of WFS. And really, I got to say, through his disciplined approach, helped us with a lot of financing and some of the stuff I'll say later, a lot has got to do with Manfred. But Manfred is not leaving us. He's just transitioning to a different role. He's going to be a special adviser, still helping with some of the key corporate projects. So as investors and analysts, you'll be pleased to know that we're still having his knowledge and skill set with us. But of course, at the same time, I want to just introduce Timothy, Tim, I call it for short, our CFO designate. So after the AGM, Tim will take over as a new group CFO. And I look forward to working closely with Tim as we continue to grow our business and really growing a true multinational company that's headquartered here in Singapore. And once again, Manfred, thank you very much for all the effort and outstanding service to SATS.

Thank you, Kerry.

Okay. And then I'll go and jump into the meeting proper. I'm pleased to announce that the full year profit has quadrupled to $243.8 million year-on-year. This is a good set of results, all thanks to the team around the world for really pulling in and getting our profitability back on track. Fourth quarter itself is about almost $39 million. That's about a $6 million year-on-year improvement. I think I'm pleased to say that revenue-wise, we have grown 13% year-on-year. This is a nice growth trajectory and probably one of our -- even with such a big revenue base, it is one of our big growth -- organic growth that we have shown on a year-on-year basis. EBITDA has expanded. Now it's crossed $1 billion, and that's 32% -- almost 33% year-on-year growth. In the fourth quarter itself is also expanded as well to about $260 million. Very pleasing for us is actually the free cash flow. Again, we ended the year with almost $230 million of free cash flow. If you recall, last year, we were negative about almost $50 million. So that's a huge turnaround and really is down to how we have improved our profitability and how we have been managing our capital expenditure as well. The fourth point synergy, we started with -- when we first did the acquisition, we announced -- or we set a target for ourselves of $100 million of EBITDA synergies over a 5-year time frame. I'm pleased to say that after 2 years, we have really hit $103 million in EBITDA synergies. And that's really driving our financial performances as well. And again, something that through the integration efforts of the team, we have been able to achieve that in 2 years. Again, very outstanding performance from the team to actually hit those targets. And the last bit, our proposed final dividend of $0.035 per share, and that will bring us to a $0.05 for the whole year. And again, this is part and parcel of us trying to share the gains with our shareholders. As we continue this growth path, we hope that this number will continue to grow as we continue to be more profitable. On the bottom-hand side, you can see all the statistics, both from the fourth quarter as well as year-on-year, again, across flights, cargo and meals has all shown tremendous growth on a year-on-year basis. So again, very pleased to have this set of growth numbers. I'll go to the next slide. Now a lot that's driving this growth has really been new client acquisition. Our commercial team, our approach to grow our business as a network business is really gaining a lot of ground. And this is just a snapshot of what we have done over the quarter as well, in fact, over the year, sorry, of how we have been having new customers coming into our network. Our business really, especially on the cargo side is based on the network. And our team has been going to all our customers and selling them our network and looking at how we can actually help them in places where we are present and they are not with us, and we've been trying to extend that service offering to them globally. And we've been fairly successful in getting some of these customers to come on our network. Next slide. So just some updates. You would have seen some of this announcement. In Singapore, we have made an investment. We announced a $250 million investment to really help upgrade our assets and our operations here in Changi Airport. And really that's to help drive the growth that we see that will still happen in Changi Airport before T5 comes on Board. So this will help us not just to modernize our fleet, but also drive productivity and safety performances as well. We've also announced the extension -- expansion of Marina Bay Cruise Center. And that's actually to help facilitate Disney Cruises that's meant to start this year. And Disney Cruise is a big ship. So we actually have to expand the capacity so that we can handle both Disney as well as another cruise ship all at the same time. At the same time, we've also extended our agreement with STB for operating a site all the way to 2037. So again, good development here on the Marina Cruise -- Marina Bay Cruise Center. On the acquisition side, we completed acquisition in Amsterdam. Again, we announced that, and that's been closed now. That's given us additional capacity of about 600 tonnes annually. Schiphol Airport is one of the key logistics hub in Amsterdam -- sorry, in Europe. And our warehouse space increase is highly strategic because this is all the air site. We have been constrained for growth in Schiphol for some time, and we are actually operating multiple sites today. So this gives us a chance to consolidate, drive more efficiency at the same time, take on more customers in Schiphol itself. On the food side, we have been participating in WTC. This is the fourth year of our participation. We have been showcasing our food products around to all our customers globally. And there's been a very interesting discussion with many of our airline customers on some of the products that we feature. One thing I want to highlight is in most airline caterers, most people struggle with vegetarian meals and or even some of the special meals that many caters have to cater for going forward. And we've been able to show this to our customers on what we can do utilizing our production facilities in Thailand, India as well as China. So good feedback from our customers, and we're quite confident that we can continue to grow this space with our key customers globally. And PAX Awards has recognized us as 7th consecutive Caterer of the Year in Asia. Our joint venture partner TajSATS also received an award in South Asia. So all in all, good progress in our catering business as well. Next slide. Just a snapshot on the synergy itself, what we have achieved. You can see from both financial as well as operational, we have achieved $103 million. So $35 million is through the operational synergies and $68 million is through the commercial synergies. So Initially, we were thinking it's going to be 50-50, but I think the commercial side has really come in very strongly. And we -- from a pipeline perspective, I'm confident that it will still show good growth in this area. We are taking market share from our competitors and winning new business that is all because of the way we operate and our operational excellence that drives our ability to win new business. So that's a good outcome, and we're really pleased with where we landed with this initiative. Next, just a summary of year-to-date. So our revenue for FY '25 is now $5.821 billion. And EBITDA, as I mentioned earlier, is above $1 billion now. EBIT is very strong margin at 8.2% to about $425 million. Our share of JV and I will go a little bit on that by which about $114 million and overall PATMI about 4.2%. When you look at the segmental growth, cargo EBITDA margin is going good. Ground is the next and then followed by the food. But you can see a snapshot of the EBIT margin all improving in there. And I guess the quarterly growth in PATMI trending has been good. Fourth quarter is traditionally low, and I will go a little bit on that. But the fourth quarter really is about -- because now cargo for us is 50% of our business, both traditionally both Europe and U.S. will always see a drop in the volume. So -- and that's because after Christmas period and of course, we also have Chinese New Year in the month of February as well, that's kind of caused this volume drop. But nevertheless, it's still a year-on-year growth in PATMI against last year. So -- and the trajectory for us is something that we continue to try and grow that going forward. Next, I'll pass it on to Manfred. Actually, I took on your slide, Manfred, my apologies.

Thank you, Kerry. I was keeping quiet so we can go on. Thank you . Okay. I -- maybe just to stay on this slide for a little bit and you look at all the key drivers, flights, cargo, meal, all these are growing at a very nice kind of growth rate, in particular, cargo as well as meals. You can see these are double-digit growth. The reason why flight is slightly muted is flights -- the ground side actually accelerated growth ahead of these two others. Maybe just to give you a little bit more context here, cargo tonnage, we grew by about 15%. And then -- and I'd like to actually show you a chart how do we compare to industry. You can see here on the slide that's loaded. The red line is -- sorry, the blue line is IATA line. And then SATS as a group, you look at the red line, we are consistently over the last 5 quarters, higher than the IATA number. And this basically demonstrates that we have been winning market share from our competitors. And the blue line is the industry. It tracks our organic growth because we are being a leader in the market. And then with the new wins, which Kerry has mentioned earlier across the network, that has given us a 5 to 6 percentage point higher. And then if you look at the flights, there's another slide on the flight side of things. And this chart here shows America and the top half. Americas is also growing higher than the IATA Americas numbers. And as for Singapore, there's no -- we don't have any ground handling in EMEA. So we are only tracking Americas and Singapore. You can see that Singapore line is -- it tracks the passenger load of Changi very, very well. It's highly correlated. Changi doesn't disclose the number of flights, but we do, and we know our flight number and it correlates with the trending of the Changi Airport passenger volume. Now just before I leave this slide, just to call out that non-aviation, there is a slight dip of about 300,000 meals. This is simply because we have consolidated our Kunshan facility into our Tianjin facility for efficiency purposes. And during the transition, there is a slight drop in some of these new volume. Number of employees increased by 1,000 from third quarter to fourth quarter. This is due to Brazil. We have increase in headcount in Brazil to cope with the volume growth and offset by America because the fourth quarter is generally a softer quarter for the U.S. And then the other two increases were one in Amsterdam, where we actually took over Menzies' operations and then also for SG Hub, which we increased about 200 to 300 employees to cope with the volume surge. Moving forward, I just wanted to -- and you will see that in this type of slides, we have been trying to be very comprehensive as much as possible for your reading. We have tabulated this financial metric. On the left side, you can see the EBITDA for the first time, we have actually crossed the $1 billion mark, came in at $1.04 billion. That's an increase of almost 33% growth compared to same time last year. Now the second metric here, EBITDA after leases, let's say, we back out the leases, what does it look like? Today, our leases -- lease charges were about $466 million. So back that out, that comes up to about $570.3 million, which is a 65% growth compared to last year. And then drop down 2 rows, operating cash flow came in very strong with a 74% growth at about $891 million. I think what is of relevance to everyone here is actually a free cash flow. Free cash flow, we registered $228 million. This is almost a 5x -- 5% growth compared to negative of about $48 million. That basically represents a conversion ratio of almost about 23% of the EBITDA and then represent almost 94% of our net earnings of $243.8 million, which we are very pleased of, and we continue to be able to financially manage and get our free cash flow to increase a bit more as we go along. Cash balance came in at $694 million. That is a slight uptick compared to same time last year of about $659 million. We have a total debt, including liabilities -- lease liabilities of about $4.2 billion. If you back out -- if we were to back up the cash portion of our net -- basically net cash of -- sorry, net debt of about $2.8 billion and thereabouts. Now moving on to the right-hand side, you can see the ratios, profitability ratio. EBIT -- all the margins are showing good growth. EBITDA margin is about 17.8%. And then if I were to back out the leases, we have registered an EBITDA margin after leases of about 9.8% EBIT margin, there's an increase to 8.2% and then PATMI grew almost about 4x ahead of last year at about 4.2%. Very quickly on the leverage, gross debt EBITDA, we came in at about 3.7x, which is below Moody's target of about 4x. So we have already satisfied and fulfilled our commitment to reduce it below 4x, and we hope to be able to continue in paring down our debt to achieve even lower leverage. So in terms of interest coverage, on the right-hand side, EBITDA over interest expense, we are about 4.2x, which is improved by about 1.2x compared to last year. Lastly, before I leave this slide, I'd like to cover return on equity has basically increased to about 9.8%. And some of you will recall that our target is continuing to trend this upwards to about 15%. That was about pre-COVID kind of return that we are aiming at. EPS, there's accretion of basically from $0.038 to about $0.164 per share. And as a result of that, our Board has basically approved to declare a dividend, as Kerry has guided of about $0.035 final dividend, totaling about $0.05 for the year. Okay. Next slide, I won't go too much into it, except to point out cargo revenue, ground revenue grew at about 15% and 3%, respectively, boosting gateway revenue growth of about 11%. And then food came in at about 22% growth, led by predominantly aviation catering of about 26%. Now the next 2 slides, I'm going to just leave you to read this. And maybe just to point out on Slide 12 here, you can see that our revenue as a group grew 13% if you were to total up, the total expenditure is actually grew only 9%. So there is a nice positive jaw to allow more profit to drop down. And as a result of that, our EBIT margin has basically improved from 4.7% to about 8.2%, giving us a 95% growth in the operating profit. And then as a result of that, that basically powered the increase in our PATMI from $56.4 million by about 3.3x to $243.8 million. On the quarterly trending, I'm just going to leave you to pick this up. I just want to point out that every single metric here has given a very nice growth compared to last year. And just to also pick up a point on the fourth quarter being seasonally low, and we have guided that although we are growing sequentially, the fourth quarter is usually a weakest quarter. And nonetheless, we are pleased to see that our PATMI has come in at about $38.7 million, which is surpassed better than last year of about $6 million, okay? On the OpEx, I'm going to leave you to read to pick this up on yourself. I just want to point out that employment costs continue to be the dominant portion of this. This is about 59% of our total OpEx, okay? Now I just want to go flip into the free cash flow slide. This is Slide 16. And this is a graphical representation and give you the profile of our free cash flow. You can see that for the last 2 quarters it has come in very, very strong and totaling about $228 million compared to negative $48 million in the previous year, right? One last slide is on the group financial position. And just to point out that our equity has increased by about $209 million due to the earnings for this year. And gross debt EBITDA on the gearing side, you can see on the right-hand side has dropped from about 4.6x to 3.7x. And as guided, we have been able to meet Moody's target of about 4x there. Return on equity, 9.8% and we will continue to work towards hitting the 15% and hopefully soon. With that, I'm going to hand you back to Kerry. Kerry, I don't have to answer any question later.

It depends on the question. Okay. Let me just go to the outlook. I think we all know that we're in this heightened environment of the uncertainty due to the tariff situation. I know that 90-day reprieve right now, we are closely monitoring the situation. Actually, we are working very closely with our customers. And in supply chain, things close to where things need to be. And because of our network and because of our space, warehouse space, we are working with them as they adjust their routing strategy. But with the reprieve, things are -- we are seeing volumes strengthening as well. So I think it helps us, right? We have a very diversified business model today. And we're not just in one region, we are across the group. That helps us. We do have also -- our food business is coming back, as you can see from the numbers. And we have been able to take on bigger market share. Again, this is really through very good commercial and operational performance that allows us to take more market share. And we are very committed to how we continue to make sure that we are a key player in Singapore Hub as well as our ecosystem partners around the world. and really just maintain focus around driving cost discipline, operational agility to really help our customers navigate this challenging environment. We believe there's opportunities for us to continue to grow. Our focus on value-added services is an important one, and that will actually help to also bring down hopefully cost for our customers' customers as well. As we continue to be successful, we'll pay down our debt, reinvest in the business and look to enhance shareholders' return.

Okay. Thank you, Kerry and Manfred.